Investing in the Machines

Investing in internet companies is relatively straight forward. Find good people with a good idea, and let the programming begin. But what about all of the other industries out there? I recently read a post by GigaOM’s Stacey Higginbotham, titled “RIP Microprocessor Startups” discussing the issues and significant costs involved with chip-maker startups. A quote from her piece:

“I don’t want to believe it’s the end of startups trying their hand against the likes of AMD or Intel, but until we come to a breakthrough in materials, ways to reduce the IP hurdles or the cost of masks and design, entrepreneurial chip engineers will have to focus on power management and cooling, MEMS and RF.”

There is a bit of a catch 22 here. The scientific breakthroughs needed to make chip-making more cost effective are going to either come from the large chip makers themselves (Intel, AMD) or research institutions and universities. Either way, the chip makers maintain their lead in the market place (they may even buy up some of the patents), or the small startups will still require that big initial investment in the machines, lithography labs, clean rooms and every other expensive component needed.

Might it be beneficial for Intel to initiate a program with a model that looks like Y-Combinator or Betaworks, but for microprocessor design and manufacturing? If so, beneficial to who?